Can a borrower redeem their mortgage under power of sale?

Can a borrower redeem their mortgage under power of sale?

The answer to this question is constantly evolving, with new and conflicting case law addressing specific facts released almost yearly. The old adage of being able to redeem your mortgage (payout your mortgage) during a power of sale proceeding so long as the mortgagee in possession (being the seller) has not yet entered into a firm or unconditional agreement of purchase and sale with a buyer is no longer clear cut.

Today the way I understand it is that there are two issues once the mortgagee in possession (being the seller/mortgage lender) enters into an agreement of purchase and sale with a potential buyer, and whether or not the borrower/mortgagor can still redeem (payout) his mortgage and keep his property:

Agreement of purchase and sale has conditions that must be satisfied prior to the agreement becoming “firm”; and

The agreement of purchase and sale includes a redemption out clause that the mortgagee has a right to accept redemption from the mortgagor of the property up until the date of closing, without liability to the buyer or seller. A redemption out clause is a commonly inserted by sellers (mortgagees/lenders in possession conducting the power of sale) into the agreement of purchase and sale, whereby the sellers reserve the right to cancel the agreement of purchase and sale with the buyers at anytime on or prior to closing in order to allow the borrower (mortgagor) the ability to payout the the mortgage debt and save their home from being sold to someone else.

Dealing with the second issue first, the leading case is Logozzo v. TD Bank. The Court of Appeal held that a redemption out clause does not make an agreement of purchase and sale conditional. Absent any other conditions, an agreement of purchase and sale is unconditional even if there is a redemption out clause. A redemption out clause affects the rights of the buyer and the mortgagee (i.e. the lender) selling the property, and formalizes the buyer’s understanding that the mortgagee may agree to accept the mortgagor’s (i.e. the borrower’s) redemption up to and including the date of sale (closing). Redemption out clauses do not confer a right to the mortgagor to redeem the property as the mortgagor is not a party to the agreement; it only gives a right to the mortgagee (i.e. the lender) at its sole and absolute discretion to grant this right and terminate the agreement of purchase and sale with the buyer.

With respect to the first issue, whether an agreement is considered conditional in the power of sale context depends on the nature of the conditions. In Logozzo v. TD Bank, the Court held that conditions respecting title in the usual agreement of purchase and sale are just that — a mere matter of title and, therefore, one of the usual terms found in an agreement of purchase and sale (e.g. providing clear and marketable title) — with the result that the agreement is an unconditional contract of sale.

There is also a line of cases that support the proposition that the mortgagor loses his or her right to redeem with the signing of even a conditional agreement of purchase and sale. See: DBM Capital Corp. v. Marino, [2002] O.J. No. 5723 (S.C.J.), aff’d for different reasons[2003] O.J. NO. 4112 (C.A.); Waring v. London & Manchester Assurance Co. (1934), [1935] Ch. 310 (Eng. Ch. Div.).

It must also be noted that a Court may exercise its discretion and stay (halt) a power of sale proceeding to permit a mortgagor to exercise his or her equity of redemption. The Courts have been reluctant to exercise its discretionary power absent fraud or unclean hands by the mortgagee, and proof that the mortgagor has the funds to redeem the mortgage.

So if I can summarize:

1) An unconditional sale without a mortgagee’s standard redemption out clause, will most likely leave a mortgagor (borrower) without a fighting chance.

2) An unconditional sale with a mortgagee’s standard redemption out clause, will give a mortgagor the chance to beg the mortgagee to agree to rescind the Agreement of Purchase and Sale, and allow the mortgagor to redeem but doesn’t have to.

3) A conditional sale that remains conditional for reasons that are not conventional to providing clear and marketable title, and are not just privy to the mortgagee and purchaser (such as depending on a third party), could allow a mortgagor to fight for a redemption so long as they can demonstrate their ability to payout the mortgage immediately.

Jeff Levy is the managing partner at Levy Zavet PC, Lawyers. Mr. Levy is an experienced Ontario-based lawyer practicing primarily in the areas of real estate, mortgages, corporate law, corporate finance, mergers and acquisitions, joint ventures, tax law, commercial finance and estate planning. His primary role is serving as a trusted adviser to businesses of all sizes including corporations and family-owned or private businesses. Mr. Levy has represented companies doing business in many different areas including mortgage investment corporations (MICs), mortgage funds, mortgage brokerages and administrators, professional corporation, land development, condominiums, software development, construction, intellectual property, trademarks, patents, retailing, distribution, manufacturing, banking, consulting and other professional service fields.
Mr. Levy’s experience includes advising start-ups seeking guidance on how to structure their businesses, counseling established companies looking for new sources of capital to fuel their growth, and assisting mature family-owned companies planning for transfer of the business to the next generation. His experience and training in business law also provide him with the background to counsel his clients on private equity transactions, venture capital and financing issues; joint ventures and strategic business relationships; software development contracts, licensing agreements and other technology issues; sales and distribution matters; and employment issues and executive compensation arrangements. He also provides advice on buying a business for those starting out or expanding their existing operations and counsels others on selling their business or exit strategies.
In addition to his regular corporate and business law experience, Jeff Levy also brings more than six years of experience to his real estate law practice. He has represented clients ranging from first time home buyers to condominium developers in the areas of residential and commercial closings, land development and assembly, condominium development, condo corporations and the condo act, Tarion Home Warranty claims, Title Insurance claims, and more. Jeff Levy greatly enjoys advising and counseling on mortgages and mortgage transactions. Everything from setting up and ongoing compliance with Mortgage Investment Corporations (MICs), mortgage brokerages, mortgage administrators, mortgage syndication, private mortgages and complex deal structuring. Jeff Levy is extremely experienced in drafting complicated mortgage loan agreements and structuring multi-collateral, diverse payments and elaborate recovery provisions in every unique situation. His long history of experience in mortgage enforcement, power of sale, and foreclosures, has given him the knowledge to foretell viable exit strategies at the loan origination stage of almost every single mortgage deal.
Jeff Levy also has significant experience in protecting intellectual property rights, and has extensive knowledge of laws related to trademarks, copyrights, know-how and trade secrets, through combinations of registrations, contractual restrictions and licensing agreements..

Disclaimer

The materials provided on this website are for educational and informative purposes and do not constitute legal or professional advice. Many factors unknown to us may affect the applicability of any statement or comment that we make on our website to your particular circumstances. Nothing contained on this website should be taken as legal advice. If you require legal advice, you should contact us, or contact the Law Society of Upper Canada for a directory of lawyers at www.lsuc.on.ca. You should not act or omit to act on anything based on any of the material contained herein without first consulting with a lawyer.

What Our Clients Have to Say

“Levy Zavet was a pleasure to work with – fast, capable and reliable.“ more ..